An Open Letter to Millennials on Retirement

6/24/2016

To my fellow Millennials,

We’re tired of hearing our names in the news. We’re tired of being the generation described as entitled, lazy and whiny. Our Millennial generation graduated in the midst of a financial crisis. We adapted fastest to the technology boom and although it may surprise you, Millennials are saving for retirement at a faster rate than previous generations.[1] But more needs to be done. It’s time to take control of our own retirement.

Our Retirement Dilemma

It’s no secret. Millennials face many major challenges saving for retirement. Three of the most daunting obstacles are student loan debt, changes to employer-sponsored retirement plans and an ever-increasing amount needed for retirement.

Don’t Let Student Loans Stand in the Way of Saving for Retirement

Our nation is facing a student debt crisis. Between 2008 and 2014, student loan debt rose 84 percent. The average graduate in 2015 borrowed $28,950 to walk across the stage. [2] With this hefty financial obligation, it is no surprise that more than 50 percent of Americans say that they have delayed saving for retirement to make student loan payments. When we do have extra income, we’re faced with questions like “Do I pay more down on my student loans? Do I finally move into the city and out of my parents’ house? Do I pay off more of my car payment?” But rarely is retirement savings at the top of the list. With such a great, immediate financial burden in student loan debt, how can we afford to put money towards our retirement? We know retirement savings is important, we just don’t know how to start saving enough in our early working years.

The way that employers sponsor retirement plans is changing. Thirty years ago, the most popular form was through a pension. Then, more than 42 percent of private-sector full-time workers had a defined benefit pension. Today, only 22 percent of full-time workers are offered this plan.[3] In the public sector, this is more common; however, it too has an increasing trend of denying a plan to new hires. Now, companies from all sectors are putting more emphasis on investment products with company matches that take the burden off of employers. We must rely on our own prowess to invest wisely and take advantage of these products appropriately, hoping that the market holds strong, but without true guarantee.

Amount Needed to Retire

The amount we each need to save is bigger. Way bigger. The Baby Boomers were estimated to need around $1.3 million for retirement. Older Millennials, born in the early 1980s, are estimated to need $1.8 while younger millennials will need $2.5 million just to maintain their current standard of living in retirement. Why do we need so much more? First, Social Security benefits are expected to be much less generous than todays and it remains to be seen how much is available. Secondly, there’s inflation. The Federal Reserve assumes a 2% inflation rate per year, but inflation tends to historically run at 3%. Third, we’re expected to live even longer than current retirees.[4] All of these factors combined mean that we need to be putting away much more money than in generations past.

Financial Planning for Millennials and the Future of Our Solutions

With so many factors impeding our ability to save, it could seem like we are doomed to work until we’re 85-years-old. Most of us hope to retire long before, taking trips to exotic destinations, helping grandchildren with college tuition or pursuing a passion. There’s hope to keep that vision alive! Millennials show the greatest increase in their retirement savings rate compared to any other generation. The average 20-something is saving 7.5% of their income this year. This is up 1.7% from 2013. Focusing on 5 important tips can help our generation to adequately save for retirement:

Make Small Changes to Live Within Your Means

We’ve all heard to live within our means, but doing so can accelerate our ability to save and increase our investable assets. Look at your expenses holistically and determine what can be cut. Can you spend less on rent? Cut your Uber trips in half? Go out to eat less often? Look for opportunities in your everyday life, like skipping the gourmet coffee to save around $100 a month and invest that money in your future. Small amounts contributed today have the potential to grow into much larger savings by retirement.

Create a Budget and stick to it.

If you don’t know how much money you’re spending in one particular area, let a free budgeting tool help. Most banks offer budget tracking linked to credit and debit accounts. Apps such as Mint and PearBudget could also help track. They allow you to link your financial accounts into one central place and categorize your expenses visually so that you can determine where to cut, by how much and set limits for yourself.

Start Saving TODAY

Now that you’ve budgeted and know how much you can save, let those extra savings do the work for you. By some calculations, each Millennial needs to be saving $1,000 each month every month for 48 years to reach their retirement savings goal. [5] However, even small amounts of money, if invested early on, can grow to an impressive amount with time. If you save $100 a month, that could grow to $31,644 in 16 years, assuming a 4% rate of compound interest. [6] Time to let your savings grow is the most powerful tool that we have.

Max out your Employer Match

In order to get a head start on your retirement, take advantage of employer sponsored plans. Many employers offer some type of matching contribution as part of their retirement plan, usually up to a percentage of your contributions. Industry standards recommend that you should be setting aside 10-12 percent of your paycheck to such a plan, but with your company’s match, it could be much less than that. This could be done automatically so that you don’t even miss what was gone!

Meet With Financial Professionals

Retirement options are very different than they even were eight years ago. Meet with a Farm Bureau Financial Professional to start planning your retirement today. With so many acronyms like IRAs and 401 (k)s, your local Farm Bureau agent can help you understand what’s best for you. You don’t need to have a lot of money to get started – what’s more important is that you start now – and use a financial professional to help you along the way.

It’s no wonder that only one in five of us feel comfortable about our retirement savings[7], but by keeping retirement in the forefront of your mind and utilizing these five steps, you can build the retirement of your dreams.

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